Divorce-Proof Your Real Estate Portfolio: What Every Canadian Investor Needs to Know

Welcome back to the Wisdom Lifestyle Money Show. I'm your host, Dillingham. Today, I'm gonna be talking to you about a not so sexy topic, but it comes up all the time is divorce. Right? What does that look like with a spouse when you own multiple properties?

So, of course, I do encourage you to seek legal advice, and I'm just I'm just speaking to you from someone who's seen it with with clients and just some of the challenges and and things that they go through and sort of like, you know, did you knows and and that that type of thing. So in Canada, currently, the divorce rate is approximately forty percent. This was based on the research that I could find online. And I, like, I I think that that's pretty pretty accurate based on, you know, the clients that we work with, and, you know, we help them buy x y z property, and then they're they're splitting up. So it happens.

Right? But we wanna know how to protect yourself and what to do in more of a did you know. Right? That's what this is about, just to educate you so you can work this out. So the thing with most provinces in Canada so I'm not gonna dive into province by province.

So this is why it's always you know, you always wanna speak to an expert. But from everything that we've researched and and know, most provinces have, you know, an equalization for real estate. So meaning, if you own real estate and you're married and you split up, you have to owe the ex. Now there's there's challenges to that. Right?

Like, if it was you and your ex that bought the property together, great. I mean, that makes a lot of sense. Right? You'll you'll sell them or you buy them out, we're good to go. But where it gets messy is if you have partners involved.

Right? So these are things, I'm not gonna necessarily in this episode tell you how to do it again because I am not a legal expert. But what I am going to do is create that awareness for you so you know things to look for and what to talk about and what to work out before you get into these scenarios. But what if you've JV partnered with somebody. Right?

And then a split up happens. Right? Like, that is a problem. Another thing that's very, very challenging is mortgage qualification. So in Canada, when the lenders hear that you're getting a divorce, they require a separation agreement.

Now in lieu of, we've been able to get them to accept, sort of an affidavit from your lawyer that you sign and your spouse signs, just stating stating who gets what and if any child support or alimony or whatever is gonna be paid. Like, you guys have worked all of that out because they do factor in those payments into your debt ratios. So say, you know, you bought the home together, fantastic, but now you wanna take over the loan. Well, if you're paying 2,000 a month in alimony or child support or whatever, that looks like a debt on your application now. Right?

So if if it looks like a divorce or a split up, they won't move forward. Even we've even seen it where, say, there was and sorry. This is going back to the banks and lenders are actively looking for this. They're very, very careful with this. So we've seen it where clients, you know, maybe the husband and wife, you know, maybe one of them has not alternate you know, not the best credit or they wanna free up income, like, they're free up their debt to income ratio so they can buy other stuff, because we do see that we see some couples trying to buy separately so they can maximize the amount of properties that they can get before they start getting into fees and stuff like that.

If a lender knows that you're married but only sees one spouse on the deal, it's a red flag. And they think, oh my god. There's a divorce. Something's happening. Like, they wanna know more.

So, and some of them don't don't even care. We had a deal with the bank, and they're like, we don't care. Add the spouse or we're not moving forward. Like, that is how adamant they were because they didn't wanna risk that there was some type of extra support or alimony payments needed, and they didn't wanna hinder their loan repayment ability. So these are all things to be aware of.

Right? These these things are are terrible. So if if you are getting a separation, work out between yourselves who's entitled to what as soon as possible, because it will help the other person. So let's just say, we'll go back to that scenario, and we're gonna say, that you have to pay your spouse 2,000 a month. Let's just pretend.

Well, now your spouse can use that 2,000 to help him or her to qualify, for whatever they need too. Right? And without that, the lenders won't move forward. So you just wanna keep that in mind and be careful. Another thing to be aware of is properties that you've owned prior to the marriage could still be partially subject, and exposed to your spouse getting some of that equity or some of it, even if they've never made any mortgage payments.

So there's agreements that you can have in place. You know, there's prenups. There's other things. This is why you need to speak to your lawyer. Again, this episode's about awareness.

So look look into these things and see, you know, what what can happen so you you minimize these these challenges. So I'm just going through some of my notes here because I have a bunch of different scenario, but what a lot of investors are doing or the savvy ones is we're seeing a cohabilitation agreement or marriage contract, where it does outline, like, this is my assets before, and it protects both parties. Because say the the wife is coming and, you know, she received a $500 inheritance, and then the the husband has, you you know, an existing property that could be worth a few 100,000. Right? By having this agreement, it does protect each other from the assets, and it really sucks that forty percent of marriages end a divorce.

Right? Like, that's massive, almost half. So you know, take things a little bit slow too. Don't just die don't just dive in. So one other thing to to keep in mind here too, another tip, is corporately held properties, they can be reviewed differently.

Okay? So keep that in mind. You wanna speak to your your lawyer and accountant, but they are processed potentially differently, giving maybe some advent, you know, tedious benefits to you, especially if you owned it before. Right? That does kinda help protect you.

But, yeah, like, it's you just wanna think of these things, not that you're gonna be failing. And I know a lot of couples because I've had this conversation with with friends and stuff, and they're like, oh, my, you know, my wife would have never agreed upon that, blah blah blah. I think if you bring it up, right, like, you don't talk about before you get married, right, dividing up your assets and keeping them separate, And then you get married and you try to talk about it or you're about to get married and talk about it. That is the wrong time. I think if you're getting into this and you start dating somebody and you have assets, you just need to say, hey.

Look. I have these assets and, you know, obviously, I'm interested in moving forward with you. We're gonna see how this goes, but I wanna make sure that these assets are protected and and kept, you know, outside of any relationship. And when you say it early, when there's just that initial connection, it's generally no problem. But when you bring it too late in the game, then they're gonna be like, oh, you don't trust me?

What's going on? So keep that in mind. Another major thing that I would say is I would try to always agree on everything internally with you and your spouse, if you are splitting up as to who gets what. Because if you get this to a diverse divorce lawyer who's gonna, you know, divide up all the assets and fight back and forth, you're going to be paying thousands and thousands and thousands of dollars of legal fees. And it might even work out worse for you.

Things that you could have, you know, held on to, received, kept, whatever. It might be something that now your spouse gets because the lawyer thought of it and wanted to demand it. Right? So it's always best that you and your spouse, if possible, right, if the breakup is something where you're still in communication, where you can negotiate these assets and and split it, you know, internally yourself. And then you can have an affidavit signed again at the lawyer.

Those are, like, a couple $100. And then that you then give to the divorce lawyer. They don't have to do the fighting and back and forth. That's where the big money comes in, and then they finalize it for you, and you're good to go. So that is a much better way that a lot of couples don't think of right away.

They're like, oh, well, let's just talk to a divorce lawyer. I don't think couples realize how much power that they have amongst themselves to agree on everything and then just finalize their internal agreements. Obviously, if you guys are fighting and it's a battle and challenge, that's a different story. You've gotta go, you know, through this journey. But I do wanna share these things too because we've also seen it where, you know, the spouse was supposed to take care of x y z mortgage payments, and I'm supposed to take care of these payments over here.

And the spouse wasn't keeping up those mortgage payments, but you're attached to the loan and it's ruining your credit. So what I do encourage you to do is if you are separating assets and a spouse is going to be carrying the debts for you, you just wanna make sure that they get everything in their name as soon as possible. And they may not be able to. Right? They may not actually qualify because maybe your income was needed.

Oregon, you know, the rental property, like, it it could be whatever the case may be. But the the point is is whatever debts and liabilities, you wanna separate them as soon as possible because you don't know what their payment history is gonna be, and you don't want your credit ruined because of somebody else. It's the worst. Like, we see it a lot, actually. That's probably the number one thing that I see is late payments on credit, and you never know because people will say whatever.

But when they come in the door, they say, hey. That was from my spouse. You know, maybe half the time it was. Maybe half the time it wasn't. I don't really know.

But the point is is that that comes up a lot, a lot. So I just want you to consider these things. Again, I think open communication and speaking to a potential partner up front is super important because if you lay the guidelines out before things get too serious, it's not going to really affect you. And and the goal of this is so when you're listening to this, you you think of these things as you enter relationships and and move forward. But let's say you're married.

Right? If you're married and you're you're buying a property with a partner, you should speak to your wife about some kind of arrangement. Right? You should be like, hey. Like, we're doing this, but how can we protect this if we don't get along or if their spouse doesn't get along?

Because it goes both ways. You don't want your partner to come to you and be like, oh, we have all these problems now because, you know, I'm breaking up with whoever. Right? So you wanna have that conversation as a couple so that it minimizes the the potential damages. Absolutely.

So because the last thing you wanna set do is sell when it's not the time to sell. We all know from investing, real estate is like a roller coaster. It has its ups and downs. In every stage, in every part of this roller coaster, you can make money. It doesn't matter if real estate's down or real estate's up.

What you do is your plan. It's your plan that changes, and that's how you maximize and create income, or equity in different market scenarios. So, I hope this helps, and I hope it gives you some thoughts and things to think of as you enter these relationships. But, you know, nobody likes to talk and and and and work on the hard stuff, and this is one of those things where it is hard to, you know, have these conversations, but it's super important to have them. And, you know, if a problem comes up and you've prepared yourself and you've lined everything up properly, it's gonna be smooth sailing for the most part.

And you're gonna be so glad that you took the time and the inconvenience and, you know, the the the feeling of of, you know, not wanting to do it or, you know, the the stress of it or anxiety of it and the fact that you did all of this upfront, it's gonna make things a lot easier for you down the road. So anyways, I hope this was helpful. I hope you liked it. Thank you so much for listening to the show. Please like, share, all that good stuff, and I'll see you next week.